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SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
      Form 10-K
      (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period from
    
    to   Commission file number
    000-13059
      CERADYNE, INC.
 (Exact name of registrant as
    specified in its charter)
      Delaware

33-0055414(State or other jurisdiction
    of
    Incorporation or organization)

(I.R.S. Employer
    Identification No.)3169 Red Hill Avenue, Costa Mesa, California(Address of principal
    executive offices)

92626(Zip
    Code)   (714) 549-0421
 (Registrants telephone
    number, including area code)
      Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class:

Name of Each Exchange on Which Registered:Common Stock, par value $0.01 per share

The NASDAQ Stock Market LLC   Securities registered pursuant to Section 12(g) of the
    Act: None
      o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  Rule 12b-2
  þ o o o
  Rule 12b-2 o þ
      DOCUMENTS INCORPORATED BY REFERENCE: Form 10-K.




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##### 





TABLE OF
    CONTENTS
  PagePART I


3ITEM 1.

Business


3ITEM 1A.

Risk Factors


26ITEM 1B.

Unresolved Staff Comments


36ITEM 2.

Properties


36ITEM 3.

Legal Proceedings


36ITEM 4.

Submission of Matters to a Vote of Security
    Holders


37PART II


38ITEM 5.

Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


38ITEM 6.

Selected Financial Data


39ITEM 7.

Managements Discussion and Analysis of
    Financial Condition and Results of Operations


40ITEM 7A.

Quantitative and Qualitative Disclosures About
    Market Risk


60ITEM 8.

Financial Statements and Supplementary Data


61ITEM 9.

Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


61ITEM 9A.

Controls and Procedures


62ITEM 9B.

Other information


62PART III


62ITEM 10.

Directors, Executive Officers and Corporate
    Governance


62ITEM 11.

Executive Compensation


62ITEM 12.

Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


63ITEM 13.

Certain Relationships and Related Transactions,
    and Director Independence


63ITEM 14.

Principal Accountant Fees and Services


63PART IV


64ITEM 15.

Exhibits and Financial Statement Schedules


64FINANCIALS


F-1EX-12.1EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2   2




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PART I



NOTE REGARDING
    FORWARD-LOOKING STATEMENTS  Form 10-K
      ITEM 1.
    BUSINESS  Introduction
        
    lightweight ceramic armor for soldiers and other military
    applications;
    ceramic industrial components for erosion and corrosion
    resistant applications;
    ceramic powders, including boron carbide, boron nitride,
    titanium diboride, calcium hexaboride, zirconium diboride and
    fused silica, which are used in manufacturing armor and a broad
    range of industrial products and consumer products;
    evaporation boats for metallization of materials for food
    packaging and other products;
    durable, reduced friction, ceramic diesel engine components;
    functional and frictional coatings primarily for automotive
    applications; 3




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
    translucent ceramic orthodontic brackets;
    ceramic-impregnated dispenser cathodes for microwave tubes,
    lasers and cathode ray tubes;
    ceramic crucibles for melting silicon in the photovoltaic solar
    cell manufacturing process;
    ceramic missile radomes (nose cones) for the defense industry;
    fused silica powders for precision investment casting (PIC);
    neutron absorbing materials, structural and non-structural, in
    combination with aluminum metal matrix composite that serve as
    part of a barrier system for spent fuel wet and dry storage in
    the nuclear industry, and non-structural neutron absorbing
    materials for use in the transport of nuclear fresh fuel rods;
    nuclear chemistry products for use in pressurized water reactors
    and boiling water reactors;
    boron dopant chemicals for semiconductor silicon manufacturing
    and for ion implanting of silicon wafers; and
    ceramic bearings and bushings for oil drilling and fluid
    handling pumps.            10
 4




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11
    18 22
    
    lightweight ceramic armor for military vehicles, boats and
    aircraft;
    ceramic components that have the potential to facilitate the
    extraction of oil from oil sands on a cost-effective basis;
    ceramic materials that have the potential to reduce
    significantly the cost of producing molten aluminum;
    chemical micro reactors, heat exchangers and hydraulic trim
    valves produced with our proprietary technology that have the
    potential to provide an economical substitute for steel in
    extreme environments;
    high purity fused silica ceramic crucibles used by several
    photovoltaic cell manufacturers in their silicon melting
    operation in order to produce polycrystalline silicon storage
    containers;
    storage containers made with our boron carbide powder that have
    the potential to be used for long-term containment of nuclear
    waste from nuclear power plants;
    small complicated ceramic components made using our injection
    molding technology that have the potential to be used as medical
    implants;
    ceramic bearing and bushing assemblies designed for longer life
    due to their rugged construction and the erosion, corrosion and
    lubricity characteristics of the ceramic bearing
    surface; and
    cluster chemicals such as
    B18H22
    and cluster ion implantation hardware required to facilitate the
    manufacture of advanced semiconductor chips.     5




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Advanced
    Technical Ceramics
    DensityMelting Point

Hardness

Chemical



(Grams(Degrees

(Vickers

Resistance

Electrical

per CubicMaterials

Fahrenheit)

Scale)

to Acids

Properties

Centimeter)Advanced technical ceramics

2,500 to 6,900

Up to 3,200

Excellent

From excellent insulators to conductors

2.5 to 4.5High strength alloy steel

2,500 to 2,700

Up to 900

Fair

Conductors

7.0 to 9.0High performance plastics

275 to 750

Up to 10

Good to Excellent

Good to excellent insulators

1.0 to 2.0      6




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Our
    Solution
    Market Opportunity

Demands of the Market

Our SolutionDefenseLightweight ceramic body armor and boron carbide powders

Due to the proliferation of automatic weapons in tactical
    operations and terrorist conflicts, it has become necessary for
    vests or other armor to stop machine gun bullets while being
    light enough in weight to allow freedom of movement without
    undue fatigue.

We have developed lightweight bullet resistant ceramic body
    armor solutions, including SAPI (small arms protective inserts),
    ESAPI (enhanced small arms protective inserts), ESBI (enhanced
    side ballistic inserts) and other systems. These products
    generally consist of hot pressed
    Ceralloy®

    546 (boron carbide) or hot pressed
    Ceralloy®

    146 (silicon carbide) and other ceramic coupled with backings
    such as
    Dyneema®,

    Spectra
    Shield®

    or
    Kevlar®

    purchased from third parties. Our subsidiary, ESK Ceramics, is a
    major manufacturer of boron carbide powders, which are used by
    us and our competitors to manufacture lightweight ceramic body
    armor.Lightweight ceramic armor for military ground-based vehicles,
    boats and aircraft

Military ground-based vehicles, boats and aircraft require
    protection against automatic weapons. Weight, cost and vehicle
    compatibility are critical technical parameters.

We have developed a series of lightweight, cost effective
    ceramic armor systems and attachment mechanisms that have
    multi-hit protection at various threat levels and can be added
    to an existing vehicle or designed into new vehicles, boats and
    aircraft.Missile radomes (nose cones)

Defensive tactical missile systems such as the PAC-3 (Patriot
    Advanced Capability)  are designed to fly at extremely high
    velocities, survive tight turning radii and operate in severe
    weather conditions. These operating conditions preclude the use
    of conventional polymer materials for radomes.

We have developed advanced technical ceramic radomes made of
    fused silica ceramics which meet certain specifications of these
    tactical defensive missile systems, and have developed a
    modified silicon nitride radome for more demanding requirements.
    We have also established a precision diamond grinding capability
    to finish these radomes. 7




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Market Opportunity

Demands of the Market

Our SolutionIndustrialAdvanced ceramic structural parts

Applications such as high performance pump seals, blast nozzles,
    chemical processing, and pulp and paper manufacturing, require
    components with corrosion and wear resistant properties,
    mechanical strength, hardness, favorable friction properties and
    the ability to withstand extreme temperature fluctuations.

We have developed products for each of these applications which
    have excellent wear resistant properties, lightness, hardness
    and the ability to withstand extremely high temperatures. We
    manufacture these products using primarily our
    EKasic®

    silicon carbide, silicon nitride and boron carbide ceramic.Boron compounds and metallurgy

Increasing productivity requirements in primary industries are
    met with boron nitride powders, which are used as high
    temperature lubricants and release agents. As filler material in
    polymers and silicones, boron nitride is used for heat
    conducting and insulating films in the electronic industry.
    Aluminum and steel foundries increasingly require consumables
    with longer lifetimes to improve their overall efficiencies.

In the aluminum extrusion industry, boron nitride powder, spray
    or suspension is used as a release agent to keep the hot metal
    away from the extrusion die. In furnace and high temperature
    applications it is used as an insulation sleeve or support for
    graphite heaters. Boron nitrides largely inert behavior
    towards molten metals makes it an ideal material for
    applications in direct contact with such materials. We supply
    break rings for horizontal continuous casting and side-dams for
    thin strip casting. We also supply high density and high purity
    silicon nitride products for aluminum-foundries worldwide.Evaporation boats

Packaging materials used for snack and other food products are
    often lined with an aluminum coating to preserve shelf life. The
    coating, or metallization, process requires a tool, called an
    evaporation boat, which can withstand the high temperature and
    corrosiveness of melted aluminum.

We have developed evaporation boats, typically made using boron
    nitride/titanium diboride, that can withstand direct contact
    with highly corrosive liquids, such as melted aluminum. These
    evaporation boats are used in the metallization of various
    surfaces, including paper, plastic and glass. 8




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Market Opportunity

Demands of the Market

Our SolutionIndustrial equipment requiring critical protection against
    severe wear or corrosion

Failure of industrial equipment is often caused by premature
    wearing out of surfaces due to abrasive action. An example is
    paper making equipment where the pulp slurry runs at
    5,000 feet per minute.

Sintered reaction bonded silicon nitride (SRBSN) industrial wear
    parts are designed to replace hard metal or oxide ceramic wear
    surfaces, resulting in greater productivity, quality and longer
    uptime.Our proprietary advanced technical ceramic side dams are used
    in  the production of steel in the continuous casting process.Photovoltaic (solar cell) manufacturing requiring crucibles for
    melting silicon

In order to produce cost effective solar cell components, it is
    necessary to melt silicon in a crucible or vessel that will be
    able to contain the molten silicon yet not allow unwanted
    chemicals to contaminate the melt.

We have developed a high purity fused silica ceramic crucible
    (receptacle) which is being used by several photovoltaic cell
    manufacturers in their silicon melting operation in order to
    produce polycrystalline silicon. We also manufacture the fused
    silica powders that are a key material for the production of our
    ceramic crucibles.Radioactive waste management and nuclear chemistry products

Increasing stockpiles of radioactive nuclear waste require
    materials that can be used to safely transport and store items
    such as spent nuclear fuel rods. New and existing nuclear power
    plants also require materials capable of containing neutron
    radiation during day-to-day operations.

The boron atom in boron carbide powder is able to capture
    neutrons, thus reducing the radioactive risk associated with
    transportation and storage of nuclear waste. Our
    Boral®

    product line, which consists of a hot-rolled sheet containing a
    core of uniformly distributed boron carbide and aluminum
    particles that is enclosed within layers of pure aluminum, forms
    a solid and effective barrier for the storage of nuclear waste.We also manufacture the boron isotope
    10B in

    its pure form. This isotope is a strong neutron absorber and is
    used for both nuclear waste containment and nuclear power plant
    neutron radiation critical control. We also produce
    complementary chemical isotopes used in the normal operation and
    control of nuclear power plants. 9




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Market Opportunity

Demands of the Market

Our SolutionSemiconductor silicon wafer manufacturing requiring
    11B

    isotopes

Silicon based semiconductor devices require p
    dopants to move the electrons through the electronic materials.

We produce the boron isotope
    11B which

    is used in the semiconductor wafer manufacturing processes as an
    additive to semiconductor grade silicon as a doping
    agent and where ultra high purity boron is required.Materials for precision investment casting

The market is demanding lower cost, thinner molds and faster
    mold build times.

We have developed fused silica refractory blends that enable the
    production of highly efficient, single-use mold systems for
    precision investment casting.Ceramic bearings, bushings and seals for fluid handling

In order to make an effective transition in fluid handling pumps
    from the pump itself to the exterior, it is necessary to have an
    interface with excellent friction and erosion and corrosion
    properties.

We have developed a number of primarily silicon carbide
    compositions and shapes for a wide variety of precision
    components for use in contact with rotational elements in fluid
    handling pumps. These are produced primarily by our ESK Ceramics
    subsidiary in Kempten, Germany, and Bazet, France.Specially designed heavy duty bearings and bushings

It is necessary to maintain the position and integrity of heavy
    duty rotational shafts in down hole oil drilling and/or water
    pumps in severe environments.

In June 2008, we acquired a series of proprietary designs for
    heavy duty stacked bearings and bushings which
    utilize our advanced technical ceramic sliding surface interface.In converting silicon wafers to semiconductors, it is necessary
    to introduce atoms of the element boron into the silicon matrix.

The market has developed and generally utilizes technology known
    as ion implantation. Starting materials used in ion implantation
    such as
    BF3
    have been generally utilized for many years. However, as the
    requirements for higher current semiconductor chips increase and
    the number of chips per unit area on the silicon wafer
    increases, there is a need for ion implantation which improves
    the manufacturing throughput of high boron content in
    semiconductor chips.

Our acquisition of SemEquip, Inc. in August 2008 brought to
    Ceradyne the intellectual property for the cluster
    molecule
    B18H22
    as well as other cluster molecules. These materials are designed
    to increase the productivity of the ion implantation technology
    in part due to the large numbers of atoms such as boron. 10




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Market Opportunity

Demands of the Market

Our SolutionAutomotive/DieselHeavy-duty diesel truck engines

In order to achieve diesel engine life of 500,000 miles or
    more without major maintenance, and to meet current
    environmental requirements, it may be necessary to replace metal
    engine components with longer lasting, lighter weight, lower
    friction ceramic parts at acceptable unit costs.

Our SRBSN ceramic cam rollers replace conventional steel cam
    rollers in order to allow diesel engines to run at higher
    internal pressures and thus meet environmental and other
    requirements.Wear-resistant functional and frictional coatings, surface
    engineered components

Engines generate extreme vibration during operation that can
    cause components joined by nuts and bolts to loosen.
    Traditionally, locknut washers have been used for this
    application.

Our wear-resistant functional and frictional coatings utilizing
    entrapped hard particles, primarily diamonds, are applied to
    shims in lieu of using locknut washers. These coatings increase
    the static friction coefficient and minimize the effects of
    vibration and allow more economic and efficient designs of
    engines, particularly in the auto industry.CommercialOrthodontic brackets

Traditional stainless steel orthodontic brackets are often
    considered unsightly. Substitute clear plastic materials can be
    weak and may stain. Some orthodontic patients prefer
    aesthetically pleasing brackets which can be affixed to each
    tooth to support the arch wire.

Our translucent ceramic orthodontic brackets are inert, reveal
the color of the patients teeth, and allow the
orthodontist to correct the patients bite. Our marketing
partner, 3M Unitek, sells this translucent ceramic bracket under
the brand name
Claritytm.BORONEIGE®

    boron nitride powder

The cosmetic industry utilizes very fine, white, silky, smooth
    powders as a base for a wide range of products including
    lipstick, eye shadow, facial creams, rouge and other related
    products. There is an increasing demand for these base materials
    which can make up to forty percent of the end product.
    Generally, the requirements include white color, controlled
    chemistry and surface area.

Boron nitride, which is made by our ESK Ceramics subsidiary, is
    a well controlled micro structure white powder. The use of our
    unique boron nitride called
    BORONEIGE®

    is anticipated to grow as the availability of the base powders
    and the use of various cosmetic products increase.  11




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Our
    Competitive Strengths
    Broad Technical Expertise in Ceramic Material
    Science.
  Proprietary Equipment and Manufacturing
    Processes.
  Vertically Integrated Manufacturer.
  Strong Position in Multiple Markets. ®
  Key Customer Relationships.
 12




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Experienced Management Team and Entrepreneurial
    Culture. ®
  Our
    Business Strategy
    Capitalizing on Opportunities in the Defense
    Market.
  Continuing to Increase our Non-Defense Revenue
    Base. ® 18 22
 13




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Identifying New Products and Markets.
  Investing to Improve our Gross Margins and Manufacturing
    Efficiencies. ®
  Market
    Applications and Products
    Defense
  Lightweight Ceramic Armor. ® ® ® tm
 14




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Boron Carbide Powders.
  Missile Radomes (Nose Cones).
  Industrial
  Fluid Handling/Wear Parts. ®
  Boron Compounds and Metallurgy Ceramics.
  Evaporation Boats.
  Industrial Wear Components. ®
  Radioactive Waste Management. ® 10
  Ceramic-Impregnated Dispenser Cathodes.
 15




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Tempered Glass Furnace Components and Metallurgical and
    Industrial Tooling
  Fused Silica Ceramic Crucibles.
  Precision Ceramics. ®
  Samarium Cobalt Permanent Magnets.
  Boron Isotopes and Molecules for the Nuclear
    Industry. 10 10
  Boron Isotopes for Semiconductors. 11 18 22
  Precision Investment Casting Products.
  Heavy Duty Bearings.
  Automotive/Diesel
  Wear-Resistant Functional and Frictional
    Coatings. ®
  Diesel Engine Components.
 16




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Commercial
  Ceramic Orthodontic Brackets. tm tm
  BORONEIGE®

    Boron Nitride Powder. BORONEIGE®,
  Operating
    Segments and Facilities
    Operating Segment and Facility Location

ProductsCeradyne Advanced Ceramic Operations

Defense Applications:   Lightweight ceramic armorCosta Mesa and Irvine,
    California(1)Approximately 240,000 square feet

Industrial Applications:   Ceralloy®

    147 SRBSN wear parts
       Precision ceramicsLexington,
    Kentucky(2)Approximately 115,000 square feet

Automotive/Diesel Applications:   Ceralloy®

    147 SRBSN automotive/diesel engine partsWixom,
    Michigan(3)Approximately 29,000 square feet

Commercial Applications:   Ceramic orthodontic brackets
       Components for medical devicesESK Ceramics

Defense Applications:   Boron carbide powders for body armorKempten,
    Germany(4)Approximately 599,000 square feet 
    Bazet,
    France(5)Approximately 88,000 square feet

Industrial Applications:   Ceramic powders: boron carbide,
    boron nitride, titanium diboride, calcium hexaboride and
    zirconium diboride
       Silicon carbide parts
       Evaporation boats for the packaging
    industry
       High performance fluid handling  pump
    sealsAutomotive/Diesel Applications:   EKagrip®

    functional and frictional coatingsCommercial Applications:   BORONEIGE®

    boron nitride powder for cosmetics 17




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Operating Segment and Facility Location

ProductsCeradyne Semicon AssociatesLexington,
    Kentucky(6)Approximately 35,000 square feet

Industrial Applications:   Ceramic-impregnated dispenser
    cathodes for microwave tubes, lasers and cathode ray tubes
       Samarium cobalt magnetsCeradyne Thermo MaterialsScottdale and Clarkston,
    Georgia(7)Approximately 225,000 square feet

Defense Applications:   Missile radomes (nose cones)
       High purity fused silica used to
    manufacture missile radomes (nose cones)Tianjin,
    China(8)Approximately 98,000 square feet 
    Midway,
    Tennessee(9)Approximately 105,000 square feet

Industrial Applications:   Glass tempering rolls
       Metallurgical tooling
       Castable and other fused silica
    products
       Crucibles for photovoltaic solar cell
    applications
       Turbine components used in aerospace
    applicationsCeradyne CanadaChicoutimi,
    Canada(10)Approximately 86,000 square feet

Industrial Applications:   Boral®

    structural neutron absorbing materials
       Metal matrix composite structuresBoronQuapaw,
    Oklahoma(11)Approximately 128,000 square feet 
    North Billerica,
    Massachusetts(12)Approximately 26,000 square feet

Industrial Applications:  Nuclear Applications:
       Nuclear chemistry products for use in
    pressurized water reactors and boiling water reactors
       Radioactive containment for use in spent
    fuel transport and storage
       Burnable poisons for coating of uranium
    fuel pellets
      Semiconductor Applications:
       Cluster molecules such as
    B18H22
    for ion implantation for next generation P-dopants
       Ionization chambers for ionizing cluster
    molecules for ion implantation
       Development of cluster ion implantation
    sub-systems
       Advanced ion source materials for the
    manufacture of logic and memory chips   (1)
    
    We have leases on our facilities in Costa Mesa, California,
    aggregating approximately 99,000 square feet, all of which
    expire in October 2010. We own our 40,000 square foot
    facility in Irvine, California. In Irvine, California, we occupy
    a 24,000 square foot facility under a lease that expires in
    April 2009 and a 76,000 square foot facility under a lease
    that expires in April 2011.(2)
    
    We own our facility in Lexington, Kentucky.(3)
    
    We have a lease on our Wixom, Michigan facility which expires in
    April 2010.(4)
    
    We own our facility in Kempten, Germany, as well as the
    28-acre
    property on which our facility is located.(5)
    
    We own our facility in Bazet, France, as well as the
    four-acre
    property on which our facility is located.(6)
    
    We own our facility in Lexington, Kentucky, as well as the
    five-acre
    property on which our facility is located. 18




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(7)
    
    We own an 85,000 square foot facility in Scottdale,
    Georgia, as well as the
    five-acre
    property on which our facility is located. We have a lease on
    our 140,000 square foot facility in Clarkson, Georgia which
    expires in June 2013.(8)
    
    We own our facility in Tianjin, China, as well as the
    four-acre
    property on which our facility is located.(9)
    
    We own our facility in Midway, Tennessee as well as the
    40-acre
    property on which our facility is located.(10)
    
    We own our facility in Chicoutimi, Quebec, Canada, as well as
    the
    seven-acre
    property on which our facility is located.(11)
    
    We own our facility in Quapaw, Oklahoma as well as the
    155-acre
    property on which our facility is located.(12)
    
    We lease our facility in North Billerica, Massachusetts.  Sales,
    Marketing and Customers
          Manufacturing
    Processes
    Hot Pressing.
 19




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Ceramic Powders (Boron Carbide
    TETRABOR®,

    Boron Nitride, Titanium Diboride, Calcium Hexaboride, Zirconium
    Diboride).
  Sintering and Reaction Bonding of Silicon Nitride
    (SRBSN). ® 3 4
  tm tm
  Manufacture of Translucent Ceramics
    (Transtar®). ®
  Functional Coatings (Surface Engineered).
 20




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Evaporation Boats
    (LaserMet®,

    DiMet®,

    TriMet®,

    FlashMet®). ®
  Sintered Parts.
  Diamond Grinding.
  Sintering of Fused Silica Ceramics.
  Injection Molding. and/or
  Boron Carbide and Aluminum Metal Matrix
    Composites. ®
  Boron Isotopes. 10 11
  High Purity Fused Silica.
 21




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Raw
    Materials
    Quality
    Control
      Engineering
    and Research
      Competition
    Backlog
   22




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Patents,
    Licenses and Trademarks
        ® ®
  18 22
  ® ® ® ® ® ® ® ® tm tm ® tm ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ® ®
  Employees
  U.S.-based
 23




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Availability
    of SEC Filings
  http://www.sec.gov.
  EXECUTIVE
    OFFICERS OF CERADYNE
    Name

Age

PositionJoel P. Moskowitz


69


Chairman of the Board, Chief Executive Officer and PresidentDavid P. Reed


54


Vice President, and President of North American Operations and
    Assistant Corporate SecretaryJerrold J. Pellizzon


55


Chief Financial Officer and Corporate SecretaryMichael A. Kraft


46


Vice President of Nuclear and Semiconductor Business UnitsThomas Jüngling


45


Vice President, and President of ESK CeramicsBruce R. Lockhart


46


Vice President, and President of Thermo MaterialsJeffrey J. Waldal


44


Vice President, and President of Semicon AssociatesKenneth R. Morris


55


Vice President of OperationsThomas A. Cole


62


Vice President, Business Development   Joel P. Moskowitz
  David P. Reed
  Jerrold J. Pellizzon
  Michael A. Kraft
 24




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Thomas Jüngling
  Bruce R. Lockhart
  Jeffrey J. Waldal
  Kenneth R. Morris
  Thomas A. Cole
   25




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ITEM 1A.
    RISK
    FACTORS  Form 10-K
  Risks
    Related to Our Business
  A
    substantial portion of our revenues is derived from the sale of
    defense related products, primarily ceramic body armor. If
    demand for ceramic body armor declines, if federal budget
    appropriations involving our products are reduced, if we fail to
    obtain new government contracts or delivery orders under
    existing contracts, or if existing government contracts or
    orders are cancelled, our revenues, profit and cash flow will be
    materially and adversely affected.
          (ID/IQ)
 26




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If the
    performance requirements for ceramic body armor are modified by
    the U.S. military, we may incur delays or additional costs to
    change the design of our product, or we may not be able to
    satisfy the new requirements with our existing ceramic materials
    and processes. If this were to occur, our costs could increase
    and our revenues, profit and cash flow would decline.
    We rely
    on two critical materials to make ceramic body armor. A delay or
    inability to obtain sufficient quantities of these materials
    could limit the amount of body armor we can manufacture and
    therefore result in reduced revenues, profit and cash
    flow.
      ® ®
 27




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We have
    recently added significant manufacturing capacity. If demand for
    our products declines, we may have inefficient or under-utilized
    capacity, and our gross margins, profit and cash flow may
    suffer.
        If we
    fail to increase our non-defense revenue, and if the demand for
    ceramic body armor decreases, our revenues, profit and cash flow
    will be materially and adversely affected.
    Growth in
    our operations may strain our resources, and if we fail to
    successfully manage potential future growth, we could incur
    higher operating costs and delays in the production of our
    products, which could result in reduced revenues, profit and
    cash flow.
   28




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
    add manufacturing capacity and personnel;
    implement and improve our operational, financial and management
    information systems;
    develop the management skills of our managers and supervisors;
    add new management personnel; and
    train, motivate and manage our employees.    We may
    generate less profit than expected or even lose money on our
    fixed price government contracts.
    Our
    business is subject to various laws and regulations favoring the
    U.S. governments contractual position, and our failure to
    comply with such laws and regulations could harm our operating
    results and prospects.
      We
    currently depend entirely on 3M Unitek for sales of our ceramic
    orthodontic brackets. If we are unable to maintain our existing
    level of business with 3M Unitek our revenues, profit and cash
    flow from this product line will decline.
   29




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##### Table of Contents



Our
    business is subject to risks associated with doing business
    outside the United States.
      
    burdens to comply with multiple and potentially conflicting
    foreign laws and regulations, including export requirements,
    tariffs and other barriers, health and safety requirements, and
    unexpected changes in any of these factors;
    difficulty in staffing and managing international operations;
    differences in intellectual property protections;
    difficulty in obtaining export licenses from the
    U.S. government for sales of our defense-related products;
    potentially adverse tax consequences due to overlapping or
    differing tax structures;
    fluctuations in currency exchange rates; and
    risks associated with operating a business in a potentially
    unstable political climate.   30




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##### Table of Contents



We may
    make future acquisitions which may be difficult to integrate,
    divert management resources, result in unanticipated costs, or
    dilute our stockholders.
    
    we may have difficulty integrating the purchased operations,
    technologies or products;
    we may incur substantial unanticipated integration costs;
    assimilating the acquired businesses may divert significant
    management attention and financial resources from our other
    operations and could disrupt our ongoing business;
    acquisitions could result in the loss of key employees,
    particularly those of the acquired operations;
    we may have difficulty retaining or developing the acquired
    businesses customers;
    acquisitions could adversely affect our existing business
    relationships with suppliers and customers;
    we may fail to realize the potential cost savings or other
    financial benefits
    and/or the
    strategic benefits of the acquisitions; and
    we may incur liabilities from the acquired businesses for
    infringement of intellectual property rights or other claims,
    and we may not be successful in seeking indemnification for such
    liabilities or claims.    The cost
    of electricity is a significant portion of our cost of product
    sales. An increase in the cost of electricity may cause our
    profit margins to decline.
   31




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##### Table of Contents



We may
    not be able to adequately safeguard our intellectual property
    rights and trade secrets from unauthorized use, and we may
    become subject to claims that we infringe on others
    intellectual property rights.
        Our
    ability to operate effectively could be impaired if we were to
    lose the services of our key personnel, or if we are unable to
    recruit qualified managers and key personnel in the
    future.
        Our
    manufacturing facilities are subject to a number of operational
    risks, including hazards associated with ceramic manufacturing
    and natural disasters, any of which could have a material
    adverse impact on our productivity and results of
    operations.
    
    accidents or mechanical failure; 32




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##### Table of Contents




    fires or explosions of furnaces; and
    employee exposure to extreme temperatures or hazardous
    substances.    Defects
    in our products could harm our reputation for quality products,
    increase our operating expenses, reduce sales of our products
    and impact cash flow.
    If we are
    unable to compete successfully against current and future
    competitors, our revenues could decline.
      
    manufacturing capacity and the ability to deliver products;
    price;
    product performance;
    material specifications;
    application engineering capabilities;
    customer support; and
    reputation.     33




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##### Table of Contents



Uninsured
    losses arising from third party claims brought against us could
    result in payment of substantial damages, which would decrease
    our cash reserves and could harm our profit and cash
    flow.
    We are
    subject to extensive government regulation, and our failure or
    inability to comply with these regulations could subject us to
    penalties and result in a loss of our government contracts,
    which could reduce our revenues, profit and cash flow.
        If we
    fail to comply with environmental laws and regulations, we could
    incur an increase in our operating costs and a decrease in our
    profit and cash flow.
         34




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Our long
    term investments are subject to risks which may cause losses and
    affect the liquidity of these investments.
    03-1 SFAS 115-1 124-1,
  Risks
    Related to our Common Stock
  Our stock
    price has been volatile, and the value of an investment in our
    common stock may decline.
    
    initiation of coverage by securities analysts, securities
    analysts buy/sell recommendations and any expressed
    beliefs of securities analysts regarding our business prospects
    or estimated trading multiples;
    our perceived prospects;
    variations in our operating results and whether we have achieved
    our key business targets;
    the limited number of shares of our common stock available for
    purchase or sale in the public markets;
    sales or purchases of large blocks of our stock;
    changes in, or our failure to meet, our earnings estimates;
    differences between our reported results and those expected by
    investors and securities analysts;
    decreases in our trading multiples on an absolute basis or
    relative to comparable companies;
    announcements of new contracts by us or our competitors;
    market reaction to any future acquisitions, joint ventures or
    strategic investments announced by us or our competitors; 35




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##### Table of Contents




    developments in the financial markets;
    market reaction to any adverse publicity or news stories; and
    general economic, political or stock market conditions.    Delaware
    law may delay or prevent a change in control, and may discourage
    bids for our common stock at a premium over its market
    price.
  2 3
  ITEM 1B.
    UNRESOLVED
    STAFF COMMENTS    ITEM 2.
    PROPERTIES    ITEM 3.
    LEGAL
    PROCEEDINGS  No. 06-CC-00156.
  06-919 Rule 10b-5
 36




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##### Table of Contents



No. 06-CC-00156. 06-919
        ITEM 4.
    SUBMISSION
    OF MATTERS TO A VOTE OF SECURITY HOLDERS   37




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##### Table of Contents



PART II  ITEM 5.
    MARKET
    FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
    AND ISSUER PURCHASES OF EQUITY SECURITIES    High


LowYear Ended December 31, 2007First Quarter

$
61.75


$
50.56Second Quarter

$
74.72


$
55.20Third Quarter

$
83.59


$
64.95Fourth Quarter

$
78.19


$
42.27Year Ended December 31, 2008First Quarter

$
50.15


$
27.92Second Quarter

$
43.13


$
32.27Third Quarter

$
49.70


$
32.19Fourth Quarter

$
36.06


$
18.15           Issuer
    Purchases of Equity Securities
  (d)Maximum Number(c)


(or ApproximateTotal Number of


Dollar Value) of(a)





Shares Purchased as


Shares that MayTotal Number of


(b)


Part of Publicly


Yet Be PurchasedShares


Average Price Paid


Announced Plans or


Under the Plans orPeriod

Purchased


per Share


Programs


ProgramsMonth No. 1 (October 1 to
    October 31, 2008)










1,128,237


$
65,080,754Month No. 2 (November 1 to
    November 30, 2008)


300,000


$
22.91



1,428,237


$
58,207,373Month No. 3 (December 1 to
    December 31, 2008)


150,000


$
19.42



1,578,237


$
55,294,808Total


450,000


$
21.75



1,578,237


$
55,294,808     (1)
    
    On March 4, 2008, we announced that our board had
    authorized the repurchase of up to $100.0 million of our
    common stock in open market transactions, including block
    purchases, or in privately negotiated transactions. We did not
    set a time limit for completion of this repurchase program, and
    we may suspend or terminate it at any time. 38




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ITEM 6.
    SELECTED
    FINANCIAL DATA  page F-1.
  Year Ended December 31,2008(1)


2007(2)


2006


2005


2004(3)(amounts in thousands, except per share data)Statement of Income Data:Net sales

$
680,197


$
756,835


$
662,888


$
368,253


$
215,612Cost of product sales


414,885



450,787



401,991



237,115



146,518Gross profit


265,312



306,048



260,897



131,138



69,094Operating expenses:Selling


31,231



26,917



22,919



20,694



8,266General and administrative


43,889



40,801



35,293



21,014



14,131Acquisition related charges


9,824















Research and development


14,782



17,552



9,909



7,802



3,341Total operating expenses


99,726



85,270



68,121



49,510



25,738Income from operations


165,586



220,778



192,776



81,628



43,356Other income (expense):Royalty income


66



174



120



145



146Interest income


7,553



12,394



6,687



434



476Miscellaneous, net


(4,425
)


(2,599
)


(919
)


275



1,602Interest expense


(4,155
)


(4,204
)


(4,105
)


(9,252
)


(1,661
)Total other income (expense)


(961
)


5,765



1,783



(8,398
)


563Income before provision for income taxes


164,625



226,543



194,559



73,230



43,919Provision for income taxes


57,875



82,278



66,155



26,452



16,346Net income

$
106,750


$
144,265


$
128,404


$
46,778


$
27,573Net income per share:Basic

$
4.04


$
5.29


$
4.77


$
1.90


$
0.52Diluted

$
4.00


$
5.20


$
4.69


$
1.86


$
0.51Weighted average number of common shares outstanding:Basic


26,446



27,252



26,924



24,635



21,442Diluted


26,689



27,732



27,352



25,107



21,900   39




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##### Table of Contents



As of December 31,2008


2007


2006


2005


2004(amounts in thousands)Balance Sheet Data:Cash and cash equivalents

$
215,282


$
155,103


$
13,547


$
91,542


$
4,521Short term investments


6,140



29,582



190,565



7,839



10,041Working capital


400,835



353,923



332,063



212,309



78,389Total assets


854,997



783,286



613,815



430,193



316,354Total long-term debt


121,000



121,000



121,000



121,000



109,725Stockholders equity


628,076



578,629



406,611



250,520



135,041     (1)
    
    The operations of SemEquip, Inc. have been consolidated with
    ours since August 11, 2008.(2)
    
    The operations of Minco, Inc. have been consolidated with ours
    since July 10, 2007. The operations of Ceradyne Boron
    Products have been consolidated with ours since
    September 1, 2007.(3)
    
    The operations of ESK Ceramics have been consolidated with ours
    since September 1, 2004.  ITEM 7.
    MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS  The following discussion and analysis of our financial
    condition and results of operations should be read together with
    Selected Consolidated Financial Data, and our
    consolidated financial statements and related notes included
    elsewhere in this report. This discussion and analysis contains
    forward-looking statements that involve risks and uncertainties.
    We base these statements on assumptions that we consider
    reasonable. Our actual results could differ materially from
    those anticipated in these forward-looking statements as a
    result of certain factors discussed in Note Regarding
    Forward-Looking Statements, Item 1A 
    Risk Factors, and elsewhere in this report.
  Overview
    
    lightweight ceramic armor for soldiers and other military
    applications;
    ceramic industrial components for erosion and corrosion
    resistant applications;
    ceramic powders, including boron carbide, boron nitride,
    titanium diboride, calcium hexaboride, zirconium diboride and
    fused silica, which are used in manufacturing armor and a broad
    range of industrial products and consumer products;
    evaporation boats for metallization of materials for food
    packaging and other products;
    durable, reduced friction, ceramic diesel engine components;
    functional and frictional coatings primarily for automotive
    applications;
    translucent ceramic orthodontic brackets;
    ceramic-impregnated dispenser cathodes for microwave tubes,
    lasers and cathode ray tubes;
    ceramic crucibles for melting silicon in the photovoltaic solar
    cell manufacturing process;
    ceramic missile radomes (nose cones) for the defense industry;
    fused silica powders for precision investment casting (PIC) and
    ceramic crucibles;
    neutron absorbing materials, structural and non-structural, in
    combination with aluminum metal matrix composites that serve as
    part of a barrier system for spent fuel wet and dry storage in
    the nuclear 40




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##### Table of Contents



industry, and non-structural neutron absorbing materials for use
    in the transport of nuclear fresh fuel rods;  
    nuclear chemistry products for use in pressurized water reactors
    and boiling water reactors;
    boron dopant chemicals for semiconductor silicon manufacturing
    and for ion implanting of silicon wafers; and
    ceramic bearings and bushings for oil drilling and fluid
    handling pumps.      Operating Segment and Facility Location

ProductsCeradyne Advanced Ceramic OperationsCosta Mesa and Irvine, CaliforniaApproximately 240,000 square feetLexington, Kentucky Approximately 115,000 square feet Wixom, Michigan Approximately 29,000 square feet

Defense Applications:   Lightweight ceramic armorIndustrial Applications:   Ceralloy®

    147 SRBSN wear parts
       Precision ceramicsAutomotive/Diesel Applications:   Ceralloy®

    147 SRBSN automotive/diesel engine partsCommercial Applications:   Ceramic orthodontic brackets
       Components for medical devicesESK Ceramics Kempten, GermanyApproximately 599,000 square feetBazet, FranceApproximately 88,000 square feet

Defense Applications:   Boron carbide powders for body
    armorIndustrial Applications:   Ceramic powders: boron carbide,
    boron nitride, titanium diboride, calcium hexaboride and
    zirconium diboride
       Silicon carbide parts
       Evaporation boats for the packaging
    industry
       High performance fluid handling pump
    sealsAutomotive/Diesel Applications:   EKagrip®

    functional and frictional coatingsCommercial Applications:   BORONEIGE®

    boron nitride powder for cosmeticsCeradyne Semicon AssociatesLexington, KentuckyApproximately 35,000 square feet

Industrial Applications:   Ceramic-impregnated dispenser
    cathodes for microwave tubes, lasers and cathode ray tubes
       Samarium cobalt magnets 41




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##### Table of Contents



Operating Segment and Facility Location

ProductsCeradyne Thermo MaterialsScottdale and Clarkston, GeorgiaApproximately 225,000 square feetTianjin, ChinaApproximately 98,000 square feetMidway, TennesseeApproximately 105,000 square feet

Defense Applications:   Missile radomes (nose cones)
       High purity fused silica used to
    manufacture missile radomes (nose cones)Industrial Applications:   Glass tempering rolls
       Metallurgical tooling
       Castable and other fused silica
    products
       Crucibles for photovoltaic solar cell
    applications
       Turbine components used in aerospace
    applicationsCeradyne CanadaChicoutimi, Quebec, CanadaApproximately 86,000 square feet

Industrial Applications:   Boral®

    structural neutron absorbing materials
       Metal matrix composite structuresBoronQuapaw, OklahomaApproximately 128,000 square feetNorth Billerica, MassachusettsApproximately 26,000 square feet

Industrial Applications:  Nuclear Applications:
       Nuclear chemistry products for use in
    pressurized water reactors and boiling water reactors
       Radioactive containment for use in spent
    fuel transport and storage
       Burnable poisons for coating of uranium
    fuel pelletsSemiconductor Applications:   Cluster molecules such as
    B18H22
    for ion implantation for next generation P-dopants
       Ionization chambers for ionizing cluster
    molecules for ion implantation
       Development of cluster ion implantation
    sub-systems
       Advanced ion source materials for the
    manufacture of logic and memory chips       Year Ended December 31,2008


2007


2006Advanced Ceramic Operations

$
450.5


$
587.3


$
528.7ESK Ceramics


152.2



160.6



148.1Semicon Associates


8.6



8.0



9.1Thermo Materials


80.2



32.0



15.0Ceradyne Canada


5.2



3.9



2.4Boron


19.0



7.7



Inter-segment elimination


(35.5
)


(42.7
)


(40.4
)Total revenue from external customers

$
680.2


$
756.8


$
662.9  42




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##### Table of Contents



Year Ended December 31,2008


2007


2006Advanced Ceramic Operations

$
149.1


$
212.6


$
177.0ESK Ceramics


4.2



13.4



17.3Semicon Associates


1.4



1.1



1.6Thermo Materials


23.7



2.3



0.9Ceradyne Canada


(0.1
)


(3.0
)


(0.7
)Boron


(15.5
)


0.7



Inter-segment elimination


1.8



(0.6
)


(1.5
)Total segment income before provision for taxes

$
164.6


$
226.5


$
194.6     Year Ended December 31,2008


2007


2006Defense


61.8
%


74.0
%


76.2
%Industrial


30.6



20.1



17.0Automotive/Diesel


5.8



4.2



5.2Commercial


1.8



1.7



1.6Total


100.0
%


100.0
%


100.0
%          43




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##### Table of Contents



Net Sales.
  Cost of Product Sales.
    Selling Expenses.
  General and Administrative Expenses.
  Research and Development Expenses.
 44




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Review of
    Historical Stock Option Grant Procedures
             45




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##### Table of Contents



Results
    of Operations
    Year Ended December 31,2008


2007


2006Net sales


100.0
%


100.0
%


100.0
%Cost of product sales


61.0



59.6



60.6Gross profit


39.0



40.4



39.4Operating expenses:Selling


4.6



3.6



3.5General and administration


6.5



5.4



5.3Acquisition related charge


1.4







Research and development


2.2



2.3



1.5Income from operations


24.3



29.1



29.1Other income (expense)


(0.1
)


0.8



0.3Income before provision for income taxes


24.2



29.9



29.4Net income


15.7
%


19.1
%


19.4
%   Year
    Ended December 31, 2008 Compared to Year Ended
    December 31, 2007
  Net Sales.
   46




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##### Table of Contents



®
    Gross Profit.
 47




---



##### Table of Contents



®
    Selling Expenses.
 48




---



##### Table of Contents



General and Administrative Expenses.
  Acquisition Related Charge. Page F-6
  Research and Development Expenses.
  Other Income (Expense).
  Income before Provision for Income Taxes.
   49




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®
  18 22
  Income Taxes.
  Year
    Ended December 31, 2007 Compared to Year Ended
    December 31, 2006
  Net Sales.
   50




---



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Gross Profit.
   51




---



##### Table of Contents



Selling Expenses.
  General and Administrative Expenses.
 52




---



##### Table of Contents



Research and Development Expenses.
  Other Income (Expense).
  Income before Provision for Income Taxes.
              Income Taxes.
 53




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Liquidity
    and Capital Resources
         54




---



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®
           55




---



##### Table of Contents



Payments Due by PeriodLess than








After 5Total


1 Year


2-3 Years


4-5 Years


YearsDebt, principal amount

$
121,000


$



$



$



$
121,000Capital lease obligations


81



26



45



10



Non-cancelable leases


6,709



2,997



3,328



384



Pension benefits


10,243



649



1,599



1,819



6,176Information technology services


1,998



744



1,247



7



Cash commitments for interest expense


93,926



3,479



6,958



6,958



76,533Utility contract


9,710


$




9,710


$



$
Total contractual obligations

$
243,669


$
7,895


$
22,887


$
9,178


$
203,709    56




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##### Table of Contents



Off-Balance
    Sheet Arrangements
    Critical
    Accounting Policies and Estimates
  page F-1
        Sales Recognition.
  Accounts Receivable.
 57




---



##### Table of Contents



page F-1.
  Inventories. (first-in,
  Accounting for Long-Lived Assets.
  Goodwill and Intangible Assets.
    Pension.
 58




---



##### Table of Contents



Recent
    Accounting Pronouncements
          14-1, 14-1)
 59




---



##### Table of Contents



14-1
  No. 03-6-1,
  No. FAS 142-3, No. FAS 142-3) No. FAS 142-3
  SFAS No. 157-3, (FSP 157-3), FSP 157-3 FSP 157-3
  ITEM 7A.
    QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK  Interest
    Rate Risk
    03-1 SFAS 115-1 124-1,
 60




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##### Table of Contents



Foreign
    Currency Fluctuations
      ITEM 8.
    FINANCIAL
    STATEMENTS AND SUPPLEMENTARY DATA  page F-1
  ITEM 9.
    CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
    FINANCIAL DISCLOSURE   61




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##### Table of Contents



ITEM 9A.
    CONTROLS
    AND PROCEDURES  Evaluation
    of Disclosure Controls and Procedures
  Rules 13a-15(e) Rule 15d-15(e)
  Changes
    in Internal Control over Financial Reporting
    Managements
    Report on Internal Control over Financial Reporting
        ITEM 9B.
    OTHER
    INFORMATION   PART III  ITEM 10.
    DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE    ITEM 11.
    EXECUTIVE
    COMPENSATION   62




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##### Table of Contents



ITEM 12.
    SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
    RELATED STOCKHOLDER MATTERS    ITEM 13.
    CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
    INDEPENDENCE    ITEM 14.
    PRINCIPAL
    ACCOUNTANT FEES AND SERVICES   63




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##### Table of Contents



PART IV  ITEM 15.
    EXHIBITS AND
    FINANCIAL STATEMENT SCHEDULES    Financial Statements
  PageReport of Independent Registered Public Accounting Firm


F-1Consolidated Balance Sheets at December 31, 2008 and 2007


F-2Consolidated Statements of Income for the Years Ended
    December 31, 2008, 2007 and 2006


F-3Consolidated Statements of Stockholders Equity for the
    Years Ended December 31, 2008, 2007 and 2006


F-4Consolidated Statements of Cash Flows for the Years Ended
    December 31, 2008, 2007 and 2006


F-5Notes to Consolidated Financial Statements


F-6     ExhibitNumber

Description2
.1

Sale and Purchase Agreement dated June 26, 2007, among
    Ceradyne, Inc., Ceradyne EPB, Inc., EaglePicher Boron, LLC,
    EaglePicher Technology Holdings, LLC and EaglePicher
    Corporation. Incorporated herein by reference to
    Exhibit 2.1 to the Registrants
    Form 10-Q
    Report for the quarter ended June 30, 2007.3
.1

Restated Certificate of Incorporation of Ceradyne, Inc., as
    filed with the Secretary of State of Delaware on May 25,
    1987. Incorporated herein by reference to Exhibit 3.1 to
    the Registrants
    Form 10-Q
    Report for the quarter ended June 30, 2006.3
.2

Certificate of Amendment of Restated Certificate of
    Incorporation of Ceradyne, Inc., as filed with the Secretary of
    State of Delaware on June 8, 2006. Incorporated herein by
    reference to Exhibit 3.2 to the Registrants
    Form 10-Q
    Report for the quarter ended June 30, 2006.3
.3

Bylaws of Registrant. Incorporated herein by reference to
    Exhibit 3.3 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2007.3
.4

Amendment to Bylaws of Registrant, adopted April 29, 1996.
    Incorporated herein by reference to Exhibit 3.4 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2007.3
.5

Amendment to Bylaws of Registrant, adopted December 18,
    2007. Incorporated herein by reference to Exhibit 3.5 to
    the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2007.4
.1

Indenture dated December 19, 2005, between Ceradyne, Inc.
    and Union Bank of California, N.A., as Trustee. Incorporated
    herein by reference to Exhibit 4.1 of Registrants
    Form 8-K
    Current Report dated December 13, 2005, filed with the
    Commission on December 19, 2005.4
.2

First Supplemental Indenture dated December 19, 2005,
    between Ceradyne, Inc. and Union Bank of California, N.A., as
    Trustee. Incorporated herein by reference to Exhibit 4.2 of
    Registrants
    Form 8-K
    Current Report dated December 13, 2005, filed with the
    Commission on December 19, 2005.4
.3

Form of 2.875% Senior Subordinated Convertible Note due
    2035. Incorporated herein by reference to Exhibit 4.3 of
    Registrants
    Form 8-K
    Current Report dated December 13, 2005, filed with the
    Commission on December 19, 2005.10
.1

Intentionally omitted.10
.2

Lease covering premises located at
    3169-A Red
    Hill Avenue, Costa Mesa, California dated October 28, 1985.
    Incorporated herein by reference to Exhibit 10.30 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1985.10
.3

Lease dated March 31, 1986 covering premises located at
    3163 Red Hill Avenue, Costa Mesa, California. Incorporated
    herein by reference to Exhibit 10.45 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1986. 64




---



##### Table of Contents



ExhibitNumber

Description10
.4

Lease dated August 5, 1986 covering premises located at 225
    Paularino Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.46 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended December 31, 1986.10
.5

Short-form Memorandum of Lease Assignment dated
    December 15, 1986, and Lease dated June 23, 1980,
    covering premises located at 3449 Church Street, Scottdale,
    Georgia. Incorporated herein by reference to Exhibit 10.47
    to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1986.10
.6

Intentionally omitted.10
.7*

Ceradyne, Inc. 1994 Stock Incentive Plan. Incorporated herein by
    reference to Exhibit 10.31 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended December 31, 1994.10
.8*

Amendment No. 1 to the Ceradyne, Inc. 1994 Stock Incentive
    Plan. Incorporated herein by reference to Exhibit 4.2 to
    Registrants Registration Statement on
    Form S-8
    (File
    No. 33-61675).10
.9

Intentionally omitted.10
.10

Intentionally omitted.10
.11

Amendment No. 2, dated June 5, 1995, to Lease covering
    premises located at
    3169-A Red
    Hill Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.33 to the Registrants
    Registration Statement on
    Form S-1
    (File
    No. 33-62345).10
.12

Amendment No. 2, dated June 5, 1995, to Lease dated
    March 31, 1986 covering premises located at 3163 Red Hill
    Avenue, Costa Mesa, California. Incorporated herein by reference
    to Exhibit 10.34 to the Registrants Registration
    Statement on
    Form S-1
    (File
    No. 33-62345).10
.13

Amendment No. 2, dated June 5, 1995, to Lease dated
    August 5, 1986 covering premises located at 225 Paularino
    Avenue, Costa Mesa, California. Incorporated herein by reference
    to Exhibit 10.35 to the Registrants Registration
    Statement on
    Form S-1
    (File
    No. 33-62345).10
.14*

Amendment No. 2 to the Ceradyne, Inc. 1994 Stock Incentive
    Plan. Incorporated herein by reference to Exhibit 10.36 to
    the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1996.10
.15*

Amendment No. 3 to the Ceradyne, Inc. 1994 Stock Incentive
    Plan. Incorporated herein by reference to Exhibit 4.4 to
    Registrants Registration Statement on
    Form S-8
    (File
    No. 333-31679).10
.16*

Amendment No. 4 to the Ceradyne, Inc. 1994 Stock Incentive
    Plan. Incorporated herein by reference to Exhibit 10.29 to
    the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1998.10
.17*

Amendment No. 5 to the Ceradyne, Inc. 1994 Stock Incentive
    Plan. Incorporated herein by reference to Exhibit 10.29 to
    the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2000.10
.18*

Amendment No. 6 to the Ceradyne, Inc. 1994 Stock Incentive
    Plan. Incorporate herein by reference to Exhibit 4.7 to the
    Registrants Registration Statement on
    Form S-8
    (File
    No. 333-64094).10
.19

Intentionally omitted.10
.20

Intentionally omitted.10
.21*

Amendment No. 7 to the Ceradyne, Inc. 1994 Stock Incentive
    Plan. Incorporated herein by referenced to Exhibit 10.34 to
    the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2002.10
.22*

Ceradyne, Inc. 2003 Stock Incentive Plan, as Amended and
    Restated as of April 11, 2005. Incorporated herein by
    reference to Exhibit 10.1 to the Registrants
    Form 8-K
    Current Report dated May 23, 2005, filed with the
    Commission on May 26, 2005.10
.23*

Form of Stock Option Agreement for use under the 2003 Stock
    Incentive Plan. Incorporated herein by reference to
    Exhibit 10.2 to the Registrants
    Form 8-K
    Current Report dated May 23, 2005, filed with the
    Commission on May 26, 2005.10
.24*

Form of Restricted Stock Unit Award Agreement for use under the
    2003 Stock Incentive Plan. Incorporated herein by reference to
    Exhibit 10.3 to the Registrants
    Form 8-K
    Current Report dated May 23, 2005, filed with the
    Commission on May 26, 2005. 65




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##### Table of Contents



ExhibitNumber

Description10
.25

Lease agreement between California State Teachers
    Retirement System, as Landlord and CERADYNE, INC., as tenant.
    Incorporated herein by reference to Exhibit 10.23 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2003.10
.26

Intentionally omitted.10
.27

Intentionally omitted.10
.28

Intentionally omitted.10
.29

Intentionally omitted.10
.30

Intentionally omitted.10
.31

Intentionally omitted.10
.32

Lease dated March 11, 1997 covering premises located at
    3159-A Red
    Hill Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.32 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.33

Extension No. 2, dated February 2, 2005, to Lease
    dated March 11, 1997 covering premises located at
    3159-A Red
    Hill Avenue , Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.33 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.34

Lease dated January 24, 2001 covering premises located at
    3161 Red Hill Avenue, Costa Mesa, California. Incorporated
    herein by reference to Exhibit 10.34 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.10
.35

Extension No. 1, dated February 2, 2005, to Lease
    dated January 24, 2001 covering premises located at 3161
    Red Hill Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.35 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.36

Extension No. 4, dated February 2, 2005, to Lease
    dated March 31, 1986 covering premises located at 3163 Red
    Hill Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.36 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.37

Extension No. 4, dated February 2, 2005, to Lease
    dated October 28, 1985 covering premises located at
    3169-A Red
    Hill Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.37 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.38

Lease dated October 28, 1985 covering premises located at
    3169-B Red Hill Avenue, Costa Mesa, California. Incorporated
    herein by reference to Exhibit 10.38 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.10
.39

Extension No. 4, dated February 2, 2005, to Lease
    dated October 28, 1985 covering premises located at 3169-B
    Red Hill Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.39 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.40

Extension No. 4, dated February 4, 2005, to Lease
    dated August 5, 1986 covering premises located at 225
    Paularino Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.40 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.41

Lease dated February 4, 2005, covering premises located at
    201 Paularino Avenue, Costa Mesa, California. Incorporated
    herein by reference to Exhibit 10.41 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.10
.42

Lease dated February 4, 2005, covering premises located at
    3159-B Red Hill Avenue, Costa Mesa, California. Incorporated
    herein by reference to Exhibit 10.42 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.10
.43

Extension No. 1, dated February 7, 2005, to Lease
    dated March 23, 2004 covering premises located at 235
    Paularino Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.43 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005. 66




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##### Table of Contents



ExhibitNumber

Description10
.44

Lease dated August 6, 2001covering premises located at
    3165-A Red
    Hill Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.44 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.45

Extension No. 1, dated March 9, 2005, to Lease dated
    August 6, 2001 covering premises located at
    3165-A Red
    Hill Avenue, Costa Mesa, California. Incorporated herein by
    reference to Exhibit 10.45 to the Registrants Annual
    Report on
    Form 10-K
    for the year ended December 31, 2005.10
.46

Lease dated January 5, 2005 covering premises located at
    205 Paularino Avenue, Costa Mesa, California. Incorporated
    herein by reference to Exhibit 10.46 to the
    Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.10
.47

Extension No. 1, dated July 14, 2005, to Lease dated
    January 5, 2005, covering premises located at 205 Paularino
    Avenue, Costa Mesa, California. Incorporated herein by reference
    to Exhibit 10.47 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2005.12
.1

Computation of Ratio of Earnings to Fixed Charges.14
.1

Code of Business Conduct and Ethics as amended and restated on
    March 18, 2008. Incorporated herein by reference to
    Exhibit 14.1 to the Registrants
    Form 8-K
    Current Report dated March 18, 2008, filed with the
    Commission on March 24, 2008.21
.1

Subsidiaries of the Registrant.23
.1

Consent of Independent Registered Public Accounting Firm,
    PricewaterhouseCoopers LLP.31
.1

Certification of Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2

Certification of Chief Financial Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.32
.1

Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.32
.2

Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.     *
    
    Each of these exhibits constitutes a management contract,
    compensatory plan, or arrangement. 67




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##### Table of Contents



CERADYNE,
    INC.
  REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            
   F-1




---



##### Table of Contents



CERADYNE,
    INC.
  CONSOLIDATED
    BALANCE SHEETS
  December 31,2008


2007(In thousands, except for share data)ASSETSCurrent assets:Cash and cash equivalents

$
215,282


$
155,103Short term investments


6,140



29,582Restricted cash


2,702



2,660Accounts receivable, net of allowances for doubtful accounts of
    $686 and $792 in 2008 and 2007, respectively


64,631



85,346Other receivables


5,316



5,704Inventories, net


101,017



92,781Production tooling, net


14,563



16,632Prepaid expenses and other


24,170



12,391Deferred tax asset


11,967



12,455Total current assets


445,788



412,654Property, plant and equipment, net


251,928



243,892Long term investments


24,434



38,089Intangible assets, net


84,384



37,578Goodwill


45,324



46,848Other assets


3,139



4,225Total assets

$
854,997


$
783,286LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable

$
22,954


$
35,990Accrued expenses


21,999



22,483Income taxes payable






258Total current liabilities


44,953



58,731Long-term debt


121,000



121,000Employee benefits


19,088



13,650Other long term liabilities


41,816



4,985Deferred tax liability


64



6,291Total liabilities


226,921



204,657Commitments and contingencies (Note 8)Stockholders equity:Common Stock, $0.01 par value: 100,000,000 authorized;
    25,830,374 and 27,318,530 shares issued and outstanding at
    December 31, 2008 and 2007, respectively


259



272Additional paid in capital


146,063



185,702Retained earnings


468,051



361,301Accumulated other comprehensive income


13,703



31,354Total stockholders equity


628,076



578,629Total liabilities and stockholders equity

$
854,997


$
783,286    F-2




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##### Table of Contents



CERADYNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF INCOME
  Years Ended December 31,2008


2007


2006(In thousands, except for per share data)Net sales

$
680,197


$
756,835


$
662,888Cost of product sales


414,885



450,787



401,991Gross profit


265,312



306,048



260,897Operating expenses:Selling


31,231



26,917



22,919General and administrative


43,889



40,801



35,293Acquisition related charge


9,824







Research and development


14,782



17,552



9,90999,726



85,270



68,121Operating income


165,586



220,778



192,776Other income (expense)Royalty income


66



174



120Interest income


7,553



12,394



6,687Miscellaneous, net


(4,425
)


(2,599
)


(919
)Interest expense


(4,155
)


(4,204
)


(4,105
)(961
)


5,765



1,783Income before provision for income taxes


164,625



226,543



194,559Provision for income taxes


57,875



82,278



66,155Net income

$
106,750


$
144,265


$
128,404Net income per common share:Basic

$
4.04


$
5.29


$
4.77Diluted

$
4.00


$
5.20


$
4.69Shares used in computing per common share amounts:Basic


26,446



27,252



26,924Diluted


26,689



27,732



27,352    F-3




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##### Table of Contents



CERADYNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY
  AccumulatedCommon Stock








Other


TotalNumber of





Retained


Deferred


Comprehensive


StockholdersShares


Amount


Earnings


Compensation


Income (Loss)


Equity(In thousands, except for share data)Balance, December 31, 2005


26,795,774


$
170,722


$
88,632


$
(1,506
)

$
(7,328
)

$
250,520Comprehensive income:Net income










128,404











128,404Net unrealized loss on available-for-sale securities


















(63
)


(63
)Minimum pension liability, net


















282



282Cumulative translation adjustment


















18,401



18,401Total comprehensive income






















147,024FAS 158 pension adjustment, net


















(241
)


(241
)Issuance of common stock


29,188



571















571Exercise of stock options


294,050



2,312















2,312Tax benefit from exercise of stock options






2,524















2,524Stock based compensation






3,901















3,901Deferred compensation






(1,506
)






1,506







Balance, December 31, 2006


27,119,012


$
178,524


$
217,036






$
11,051


$
406,611Comprehensive income:Net income










144,265











144,265Net unrealized loss on available-for-sale securities


















(434
)


(434
)Net change in pension liability


















1,123



1,123Cumulative translation adjustment


















19,614



19,614Total comprehensive income






















164,568Issuance of common stock


19,204



401















401Exercise of stock options


180,314



1,297















1,297Tax benefit from exercise of stock options






3,301















3,301Stock based compensation






2,451















2,451Balance, December 31, 2007


27,318,530


$
185,974


$
361,301






$
31,354


$
578,629Comprehensive income:Net income










106,750











106,750Net unrealized loss on available-for-sale securities


















(5,271
)


(5,271
)Net change in pension liability


















(3,296
)


(3,296
)Cumulative translation adjustment


















(9,084
)


(9,084
)Total comprehensive income






















89,099Issuance of common stock


55,281



809















809Repurchases of common stock


(1,578,237
)


(44,705
)














(44,705
)Exercise of stock options


34,800



366















366Tax benefit from exercise of stock options






769















769Stock based compensation






3,109















3,109Balance, December 31, 2008


25,830,374


$
146,322


$
468,051


$



$
13,703


$
628,076    F-4




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##### Table of Contents



CERADYNE,
    INC.
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
  Years Ended December 312008


2007


2006(In thousands)Cash flows from operating activities:Net income

$
106,750


$
144,265


$
128,404Adjustments to reconcile net income to net cash provided by
    operating activities:Depreciation and amortization


36,668



26,751



18,054Deferred income taxes


(1,685
)


(2,288
)


(4,938
)Stock compensation


3,109



2,451



3,901Net unrealized loss on auction rate securities


5,870







Loss on equipment disposal


257



908



152Changes in operating assets and liabilities, net of assets
    acquired:Accounts receivable, net


20,830



(1,584
)


(17,392
)Other receivables


333



(2,149
)


(607
)Inventories, net


(6,623
)


(6,270
)


(2,987
)Production tooling, net


2,018



4,473



(5,670
)Prepaid expenses and other


(10,825
)


337



(4,388
)Other assets


(265
)


(974
)


27Accounts payable


(13,256
)


(3,797
)


10,749Accrued expenses


(3,029
)


(827
)


2,209Income tax payable


(232
)


(12,754
)


3,762Other liabilities


114



1,125



7,265Other long term liability


9,667



4,985



686Employee benefits


6,269



(1,066
)


Net cash provided by operating activities


155,970



153,586



139,227Cash flows from investing activities:Purchases of property, plant and equipment


(44,047
)


(42,245
)


(36,008
)Changes in restricted cash


(42
)


(2,660
)


Purchases of marketable securities






(700,443
)


(673,214
)Proceeds from sales and maturities of marketable securities


21,738



823,499



490,488Acquisition of businesses, net of cash acquired


(27,208
)


(99,098
)


(6,679
)Proceeds from sale of equipment


84



9



Net cash (used in) investing activities


(49,475
)


(20,938
)


(225,413
)Cash flows from financing activities:Proceeds from issuance of common stock for stock plans






401



571Proceeds from issuance of stock due to exercise of stock options


366



1,297



2,312Tax benefit due to exercise of stock options


769



3,531



2,884Shares repurchased


(44,705
)






Net cash (used in) provided by financing activities


(43,570
)


5,229



5,767Effect of exchange rates on cash and cash equivalents


(2,746
)


3,679



2,424Increase (decrease) in cash and cash equivalents


60,179



141,556



(77,995
)Cash and cash equivalents, beginning of period


155,103



13,547



91,542Cash and cash equivalents, end of period

$
215,282


$
155,103


$
13,547Supplemental disclosures of cash flow information:Interest paid

$
3,484


$
3,520


$
3,452Income taxes paid

$
63,545


$
90,775


$
65,333Supplemental schedule of non-cash financing activities:Fulfillment of 401(k) obligations through the issuance of stock

$
1,291


$
1,085


$
828    F-5




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
  1.
    Description
    of Business      2.
    Summary
    of Significant Accounting Policies  a.
    Principles
    of Consolidation and Nature of Operations    b.
    Cash
    and Cash Equivalents    c.
    Investments    FAS 157-2,
           F-6




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##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        
    Probability of earning maximum rate until maturity
    Probability of passing auction at some point in the future
    Probability of default at some point in the future (with
    appropriate loss severity assumptions)     F-7




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        d.
    Foreign
    Exchange Risk Management    e.
    Accounts
    Receivable, Net      Balance at





Write-offs


Balance atBeginning





and


End ofof Year


Additions


Recoveries


YearDecember 31, 2008

$
792


$
955


$
1,061


$
686December 31, 2007

$
1,158


$
111


$
477


$
792December 31, 2006

$
545


$
1,025


$
412


$
1,158   f.
    Inventories  first-in,
 F-8




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007Raw materials

$
18,377


$
22,772Work-in-process


45,180



46,853Finished goods


37,460



23,156$
101,017


$
92,781   g.
    Production
    Tooling    h.
    Property,
    Plant and Equipment, Net    December 31,2008


2007Land and land improvements

$
17,073


$
15,086Buildings and improvements


97,234



81,965Machinery and equipment


202,963



179,727Leasehold improvements


8,241



16,572Office equipment


26,175



19,512Construction in progress


13,469



16,880365,155



329,742Accumulated depreciation and amortization


(113,227
)


(85,850
)$
251,928


$
243,892     Buildings and improvements

30 yearsMachinery and equipment

3 to 12 yearsOffice equipment

5 yearsLeasehold improvements

Shorter of 10 years or the term of lease    F-9




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##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  i.
    Goodwill
    and Intangible Assets, Net  and/or
    ACO


Semicon


Thermo


ESK


Canada


Boron Products


TotalDecember 31, 2006

$
2,608


$
603


$
279


$
9,196


$
3,832






$
16,518Acquisition of Minco, Inc.










11,099















11,099Acquisition of Boron Products






















18,251



18,251Translation














980











980December 31, 2007


2,608



603



11,378



10,176



3,832



18,251


$
46,848Translation and other










(1,047
)


(477
)










(1,524
)December 31, 2008

$
2,608


$
603


$
10,331


$
9,699


$
3,832


$
18,251


$
43,324     December 31, 2008


December 31, 2007Gross


Accumulated


Net


Gross


Accumulated


NetAmount


Amortization


Amount


Amount


Amortization


AmountAmortizing Intangible AssetsBacklog

$
1,795


$
1,795


$



$
1,795


$
1,795


$
Developed technology


42,489



3,106



39,383



11,617



1,666



9,951Trade name


1,110



302



808



1,110



142



968Customer Relationships


46,604



4,465



42,139



25,230



947



24,283Non-compete agreement


500



500







500



178



322Non-amortizing
    tradename


2,054







2,054



2,054







2,054Total

$
94,552


$
10,168


$
84,384


$
42,306


$
4,728


$
37,578    F-10




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Identified Intangible Asset

Estimated Useful Life in Years or MonthsDeveloped technology

10 years  12.5 yearsTradename

10 yearsCustomer relationships

10 years  12.5 yearsBacklog

1 month  3 monthsNon-compete agreement

15 months     j.
    Sales
    Recognition    k.
    Net
    Income Per Share      December 31,2008


2007


2006Weighted average number of shares outstanding


26,445,785



27,252,448



26,923,916Dilutive stock options


217,972



285,427



364,002Dilutive restricted stock units


25,434



39,853



63,931Dilutive convertible note shares






154,274



Number of shares used in dilutive computation


26,689,191



27,732,002



27,351,849  F-11




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  l.
    Accounting
    for Long-Lived Assets    m.
    Use of
    Estimates    n.
    Research
    and Development    o.
    Fair
    Value of Financial Instruments    p.
    Income
    Taxes     F-12




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  q.
    Share-Based
    Compensation      r.
    Comprehensive
    Income    December 31,2008


2007Unrealized loss on available-for-sale-securities, net

$
(5,911
)

$
(640
)Net change in pension liability


(3,124
)


172Cumulative translation adjustment


22,738



31,822$
13,703


$
31,354   s.
    Fair
    Value Measurements  FAS 157-2,
           F-13




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
               F-14




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            Fair Value Measurementsat December 31, 2008UsingSignificantQuoted Prices

Other

Significant

Total Carryingin Active

Observable

Unobservable

Value atMarkets

Inputs

Inputs

December 31,(Level 1)

(Level 2)

(Level 3)

2008(In thousands)Cash and cash equivalents (including restricted cash)

$
217,984


$



$



$
217,984Short term investments


6,140











6,140Long term investments










24,434



24,434Other long-term financial asset

$
1,355


$



$



$
1,355      F-15




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      t.
    New
    Accounting Pronouncements          14-1, 14-1)
 F-16




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  14-1
  No. 03-6-1,
  No. FAS 142-3, No. FAS 142-3) No. FAS 142-3
  SFAS No. 157-3, (FSP 157-3), FSP 157-3 FSP 157-3
  3.
    Acquisitions  Acquisition
    of SemEquip, Inc.
  15-year
 F-17




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Cash consideration paid to SemEquip stockholders

$
23,315Accrued purchase consideration


25,235Direct transaction fees and expenses


1,970Total purchase price

$
50,520       Cash

$
2,192Inventories


3,574Accounts receivable, net


446Other current assets


276Property, plant and equipment


1,071Intangible assets


48,189Accounts payable and other liabilities


(3,685
)Non-current deferred tax liability, net


(1,543
)Net assets acquired

$
50,520          F-18




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      
    SemEquip historical operating margins and performance of
    comparable publicly traded entities
    Number of customers and SemEquip market share
    Contractual and non-contractual relationships with large
    customers, and
    Patents held    2008


2007Net sales

$
682,978


$
760,642Net income(1)


102,909



129,549Basic income per share

$
3.89


$
4.75Diluted income per share

$
3.86


$
4.67     (1)
    
    The unaudited pro forma information for the years ended
    December 31, 2008 and 2007 includes the $9.8 million
    pre-tax acquisition related compensation charge associated with
    a pre-closing commitment by SemEquip to pay incentive
    compensation to several of its employees and advisors, which has
    been recognized in the Companys historical results of
    operations for these periods. The unaudited pro forma
    information for the years ended December 31, 2008 and 2007
    include pro forma adjustments to reflect pre-tax increase in
    amortization expense of $398,000 and $0.7 million,
    respectively, related to managements estimate of the fair
    value of intangible assets acquired in the SemEquip acquisition.  Asset
    Purchase  Proprietary Technical Ceramic Bearing
    Technology
   F-19




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash

$
4,000Transaction costs


115Total purchase price

$
4,115Fair value of assets acquired:Fixed assets

$
29Customer relationships


120Developed technology


3,966Total fair value of assets acquired

$
4,115     Acquisition
    of Minco, Inc.
       F-20




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Cash

$
27,905Transaction costs


216Total purchase price

$
28,121Fair value of assets acquired and liabilities assumed:Cash

$
332Accounts receivable, net


2,503Inventory


3,301Property, plant and equipment


7,114Other assets


1,473Assumed liabilities


(1,892
)Deferred taxes


(3,741
)Backlog


110Developed technology


1,510Tradename


650Customer relationships


6,210Non-compete


500Goodwill


10,051$
28,121       Identified Intangible Asset

Estimated Useful Life in Years or MonthsDeveloped technology

10 yearsTradename

10 yearsCustomer relationships

10 yearsBacklog

1 monthNon-compete agreement

15 months     Acquisition
    of EaglePicher Boron LLC
     F-21




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Cash

$
69,600Transaction costs


1,709Total purchase price

$
71,309Fair value of assets acquired and liabilities assumed:Accounts receivable, net

$
2,811Inventory


6,375Property, plant and equipment


23,636Other assets


61Assumed liabilities


(1,505
)Backlog


1,110Developed technology


2,280Customer relationships


18,290Goodwill


18,251$
71,309       Identified Intangible Asset

Estimated Useful Life in Years or MonthsDeveloped technology


12.5 yearsCustomer relationships


12.5 yearsBacklog


3 months     Asset
    purchase 
    Boral®

    product line
  ®
 F-22




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Boral Product LineNet tangible assets

$
717Intangible assets (estimated useful life of 10 years)


2,130Goodwill


3,832Total purchase price

$
6,679   4.
    Debt and
    Bank Borrowing Arrangements; Convertible Note and Common Stock
    Offerings           F-23




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
            5.
    Financial
    Instruments  Foreign
    Exchange Risk Management
    6.
    Income
    Taxes    2008


2007


2006Current, domestic

$
59,303


$
79,406


$
66,862Current, foreign


229



4,897



4,713Current, total


59,532



84,303



71,575Deferred, domestic


(1,590
)


(984
)


(6,458
)Deferred, foreign


(67
)


(1,041
)


1,038Deferred, total


(1,657
)


(2,025
)


(5,420
)Provision for income taxes

$
57,875


$
82,278


$
66,155  F-24




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    December 31,2008


2007Deferred tax asset:Inventory

$
6,806


$
5,342Vacation accrual


950



1,061Bad debt allowance


199



323Accrued payroll


1,615



1,759State taxes


1,992



3,310Other


1,487



1,228Total current deferred tax asset, before valuation allowance


13,049



13,023Valuation allowance


(467
)


Current deferred tax asset, net of valuation allowance

$
12,582


$
13,023Current deferred tax (liability):Prepaid expenses


(615
)


(568
)Total current deferred tax (liability):


(615
)


(568
)Net current deferred tax asset

$
11,967


$
12,455Non current deferred tax assets:Deferred compensation

$
2,906


$
2,653Accrued payroll


1,355



1,638Acquisition related compensation


4,012



Unrealized currency loss






358State taxes


558



257Net operating loss carryforwards


18,842



494Research credits


2,091



Unrealized investment loss


6,605



861Pension liability


1,889



Foreign tax credit carryforward


771



Total non current deferred tax assets


39,029



6,261Valuation allowance


(2,222
)


Non current deferred tax assets, net of valuation allowance


36,807



6,261Non current deferred tax (liabilities):Depreciation and amortization


(10,821
)


(7,859
)Fixed asset step up


(962
)


(911
)Intangible asset step up


(24,382
)


(3,307
)Other


(706
)


(475
)Total non current deferred tax (liabilities)


(36,871
)


(12,552
)Net non current deferred tax (liability)

$
(64
)

$
(6,291
)  F-25




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
          December 31,2008


2007


2006Income before taxes, domestic

$
140,522


$
215,608


$
179,497Income before taxes, foreign


24,103



10,845



15,062Income before taxes, total

$
164,625


$
226,543


$
194,559Provision for income taxes at federal statutory rate (35)%


57,619



79,290



68,096State income taxes, net of federal benefit


4,724



9,468



2,270Permanent items


247



584



398Extraterritorial income exclusion










(2,417
)Credits


(564
)


(502
)


(399
)Manufacturing deduction


(2,882
)


(4,147
)


(1,600
)Foreign earnings not taxed at federal rate


(5,583
)






Other


4,314



(2,415
)


(193
)Provision for income taxes

$
57,875


$
82,278


$
66,155Effective tax rate


35.16
%


36.32
%


34.00
%      F-26




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2008


2007Balance at January 1,

$
4,556


$
6,178Additions based on tax positions related to the current year


676



494Additions for tax positions of prior years


2,724



Reductions of tax positions of prior years


(729
)


(2,116
)Balance at December 31,

$
7,227


$
4,556   2003-2008 years 2005-2007
  7.
    Employee
    Retirement and Other Benefit Plans  Supplemental
    Retirement Plan
    Pension
    and Other Postretirement Benefit Plans
     F-27




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    German
    Pension and Benefit Plans
         F-28




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2008


2007


2006Service cost

$
(437
)

$
(463
)

$
(442
)Interest cost


(490
)


(400
)


(335
)Amortization






(60
)


(85
)Net periodic benefit cost

$
(927
)

$
(923
)

$
(862
)     2008

2007

2006Discount rate


5.75
%


5.75
%


4.50
%Rate of long-term compensation increase


2.50
%


2.50
%


2.50
%     2008


2007Funded status at end of year:Projected benefit obligation

$
(11,032
)

$
(8,503
)Assets at fair value






Funded status

$
(11,032
)

$
(8,503
)Net amounts recognized in consolidated balance sheet:Current liabilities

$
(106
)

$
(106
)Non-current liabilities

$
(10,926
)

$
(8,397
)Change in projected benefit obligation:Projected benefit obligation at beginning of year

$
(8,503
)

$
(8,617
)Foreign currency exchange rate changes


568



(855
)Service costs


(437
)


(463
)Interest costs


(490
)


(400
)Actuarial gains (losses)


(2,280
)


1,722Benefits paid


110



110Projected benefit obligation at end of year

$
(11,032
)

$
(8,503
)Accumulated benefit obligation

$
(10,173
)

$
(8,140
)     2008

2007Discount rate


6.25
%


5.75
%Rate of long-term compensation increase


3.00
%


2.50
%  F-29




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008Before-


Tax


Net-of-Tax


(Expense) or


TaxAmount


Benefit


AmountAccumulated other comprehensive income (loss) at beginning of
    year

$
362


$
(134
)

$
228Net actuarial gain (loss) arising during current year


(2,280
)


670



(1,610
)Foreign currency effect


43



(6
)


37Accumulated other comprehensive income (loss) at end of year(1)

$
(1,875
)

$
530


$
(1,345
)     (1)
    
    Approximately $90 of net actuarial loss included in accumulated
    other comprehensive loss will be amortized into income in 2009.  2007Before-


Tax


Net-of-Tax


(Expense) or


TaxAmount


Benefit


AmountAccumulated other comprehensive income (loss) at beginning of
    year

$
(1,542
)

$
591


$
(951
)Net actuarial gain (loss) arising during current year


1,722



(660
)


1,062Amortization of actuarial gain


60



(17
)


43Foreign currency effect


122



(48
)


74Accumulated other comprehensive income (loss) at end of year

$
362


$
(134
)

$
228     Pensionkasse  Old

$
1,496Additional Compensation


(1,102
)Deferred Compensation


208Total Contributions expected in 2009

$
2,806     2009

$
1312010


1582011


2392012


2922013


3172014  2018


2,314    F-30




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Ceradyne
    Boron Products Pension Plans
        2008


2007Service costs

$
110


$
39Interest costs


510



183Expected return on assets


(697
)


(235
)Net periodic pension (benefit)

$
(77
)

$
(13
)     2008

2007Discount rate


5.92
%


6.17
%Rate of long-term compensation increase


4.00
%


4.00
%Expected return on plan assets


8.00
%


8.00
%  F-31




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007Funded status at end of year:Projected benefit obligation

$
9,210


$
8,963Assets at fair value


6,446



8,947Funded status

$
(2,764
)

$
(16
)Net amount recorded in consolidated balance sheet:Noncurrent liabilities

$
(2,764
)

$
(16
)Change in projected benefit obligation:Benefit obligation at beginning of period

$
(8,963
)

$
(8,995
)Service costs


(110
)


(39
)Interest costs


(510
)


(183
)Actuarial gains (losses)


(146
)


121Benefits paid


519



133Projected benefit obligation at end of year

$
(9,210
)

$
(8,963
)Changes in plan assets:Fair value of plan assets at beginning of period

$
8,947


$
9,056Actual return (loss) on plan assets


(1,981
)


24Benefits paid


(519
)


(133
)Fair value of plan assets at end of year

$
6,447


$
8,947Accumulated benefit obligation at end of year

$
(9,188
)

$
(8,946
)     2008

2007Discount rate


5.74
%


5.95
%Rate of long-term compensation increase


4.00
%


4.00
%     2008Before-


Tax


Net-of-Tax


(Expense) or


TaxAmount


Benefit


AmountAccumulated other comprehensive income (loss) at beginning of
    year

$
(91
)

$
35


$
(56
)Net actuarial loss arising during current year


(2,824
)


1,101



(1,723
)Accumulated other comprehensive income (loss) at end of year(1)

$
(2,915
)

$
(1,136
)

$
(1,779
)     (1)
    
    Approximately $194 of actuarial net loss included in accumulated
    other comprehensive loss will be amortized into income in 2009.  F-32




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  2007Before-


Tax


Net-of-Tax


(Expense) or


TaxAmount


Benefit


AmountAccumulated other comprehensive income at date of acquisition

$



$



$
Net actuarial loss arising during current year


(91
)


35



(56
)Accumulated other comprehensive income (loss) at end of year

$
(91
)

$
35


$
(56
)       2009

$
5182010


5952011


6072012


6002013


6102014  2018


3,862   8.
    Commitments
    and Contingencies  a.
    Operating
    Lease Obligations    2009

$
2,9972010


2,5862011


7422012


2852013


99$
6,709  F-33




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  b.
    Legal
    Proceedings  No. 06-CC-00156.
  06-919 Rule 10b-5
    No. 06-CC-00156. 06-919
       F-34




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    9.
    Disclosure
    About Segments of Enterprise and Related Information   F-35




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SEGMENT
    INFORMATION FOR THE YEARS ENDED
    DECEMBER 31, 2008, 2007 AND 2006
  2008


2007


2006(Amounts in thousands)RevenueACO

$
450,452


$
587,279


$
528,687ESK Ceramics


152,238



160,623



148,154Semicon Associates


8,551



7,970



9,065Thermo Materials


80,158



32,025



15,021Ceradyne Canada


5,222



3,916



2,405Boron


19,007



7,766



Inter-segment elimination


(35,431
)


(42,744
)


(40,444
)Total revenue from external customers

$
680,197


$
756,835


$
662,888Depreciation and AmortizationACO

$
10,523


$
9,328


$
7,589ESK Ceramics


13,144



10,630



8,822Semicon Associates


423



346



363Thermo Materials


5,497



3,061



921Ceradyne Canada


1,043



732



359Boron


6,038



2,654



Total

$
36,668


$
26,751


$
18,054Segment Income before Provision for Income TaxesACO

$
149,060


$
212,681


$
177,039ESK Ceramics


4,214



13,373



17,304Semicon Associates


1,377



1,131



1,580Thermo Materials


23,694



2,304



881Ceradyne Canada


(69
)


(3,041
)


(680
)Boron


(15,508
)


727



Inter-segment elimination


1,857



(632
)


(1,565
)Total

$
164,625


$
226,543


$
194,559Segment AssetsACO

$
384,816


$
410,244


$
396,766ESK Ceramics


226,626



209,384



174,926Semicon Associates


5,939



5,682



6,174Thermo Materials


96,163



67,465



17,844Ceradyne Canada


21,667



20,480



18,105Boron


119,786



70,031



Total

$
854,997


$
783,286


$
613,815Expenditures for PP&EACO

$
5,150


$
8,174


$
15,598ESK Ceramics


22,079



17,384



6,749Semicon Associates


371



396



250Thermo Materials


12,635



14,696



4,696Ceradyne Canada


3,381



1,528



8,715Boron


431



67



Total

$
44,047


$
42,245


$
36,008  F-36




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  SEGMENT
    INFORMATION FOR THE YEARS ENDED
    DECEMBER 31, 2008, 2007 AND 2006
  2008


2007


2006Percentage of U.S. net sales from external customersACO


63
%


75
%


78
%ESK Ceramics


2
%


2
%


3
%Semicon Associates


1
%


1
%


1
%Thermo Materials


4
%


2
%


2
%Ceradyne Canada


1
%


1
%


Boron


2
%


1
%


Total percentage of U.S. net sales from external customers


73
%


82
%


84
%Percentage of foreign net sales from external customersACO


3
%


2
%


2
%ESK Ceramics


16
%


14
%


13
%Semicon Associates










Thermo Materials


7
%


2
%


1
%Ceradyne Canada










Boron


1
%






Total percentage of foreign net sales from external customers


27
%


18
%


16
%Percentage of total net sales from external customersACO


66
%


77
%


80
%ESK Ceramics


18
%


16
%


16
%Semicon Associates


1
%


1
%


1
%Thermo Materials


11
%


4
%


3
%Ceradyne Canada


1
%


1
%


Boron


3
%


1
%


Total percentage of net sales from external customers


100
%


100
%


100
%     December 31,2008


2007


2006Armor

$
410,649


$
551,301


$
488,230Automotive


17,604



10,961



17,018Orthodontics


9,977



10,603



10,372Industrial


12,222



14,414



13,067$
450,452


$
587,279


$
528,687   10.
    Share
    Based Compensation   F-37




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
           F-38




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2008


2007


2006Share-based compensation expense recognized:General and administrative, options

$
438


$
710


$
3,074General and administrative, Units


2,671



1,741



827Related deferred income tax benefit


(1,094
)


(890
)


(1,326
)Decrease in net income

$
2,015


$
1,561


$
2,575           2008


2007


2006Weighted





Weighted





WeightedAverage





Average





AverageNumber of


Exercise


Number of


Exercise


Number of


ExerciseOptions


Price


Options


Price


Options


PriceOutstanding, beginning of year


497,325


$
12.04



677,370


$
11.41



977,870


$
10.49Options granted





$







$







$
Options exercised


(30,675
)

$
9.04



(159,495
)

$
8.15



(294,050
)

$
8.10Options cancelled


(3,750
)

$
15.05



(20,550
)

$
21.50



(6,450
)

$
22.71Outstanding, end of year


462,900


$
12.22



497,325


$
12.04



677,370


$
11.41Exercisable, end of year


437,025


$
11.71



429,600


$
10.83



481,470


$
9.83  F-39




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007


2006Weighted





Weighted





WeightedAverage





Average





AverageGrant Fair





Grant Fair





Grant FairUnits


Value


Units


Value


Units


ValueOutstanding, beginning of year


149,759


$
52.94



137,100


$
41.13



77,000


$
22.44Granted


168,076


$
40.54



72,850


$
66.06



77,550


$
55.48Vested


(40,671
)

$
49.09



(31,791
)

$
41.47



(16,450
)

$
22.68Forfeited


(5,900
)

$
49.08



(28,400
)

$
42.39



(1,000
)

$
22.46Non-vested Units at end of year


271,264


$
45.90



149,759


$
52.94



137,100


$
41.13     Outstanding


ExercisableAverage


Weighted


Aggregate





Average


Weighted


AggregateRemaining


Average


Intrinsic





Remaining


Average


IntrinsicNumber of


Contractual


Exercise


Value


Number of


Contractual


Exercise


ValueRange of Exercise Prices

Options


Life (Years)


Price


(000s)


Options


Life (Years)


Price


(000s)$1.44 - $2.81


900



0.72


$
1.61


$
17



900



0.72


$
1.61


$
17$2.98 - $4.58


213,975



3.08


$
4.12


$
3,464



213,975



3.08


$
4.12


$
3,464$10.53 - $16.89


122,025



4.69


$
16.89


$
417



122,025



4.69


$
16.89


$
417$18.80 - $24.07


126,000



5.71


$
21.51


$
23



100,125



5.66


$
21.71


$
8Total


462,900



4.22


$
12.22


$
3,921



437,025



4.12


$
11.71


$
3,906     OutstandingAverage


Weighted


AggregateRemaining


Average


IntrinsicNumber of


Contractual


Grant


ValueRange of Grant Prices

Units


Life (Years)


Price


(000s)$21.46 - $22.68


21,800



1.39


$
22.34


$
$37.41 - $39.43


110,076



4.21


$
38.58


$
$42.28 - $45.7


62,838



3.88


$
44.49


$
$52.47 - $62.07


41,130



2.68


$
59.01


$
$66.35 - $81.18


35,420



3.07


$
70.43


$
271,264



3.52


$
45.90


$
      F-40




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  11.
    Review of
    Historical Stock Option Grant Procedures             F-41




---



##### Table of Contents



CERADYNE,
    INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Materiality
    12.
    Quarterly
    Financial Information (unaudited)    Quarter
    Ending
  March 31,


June 30,


September 30,


December 31,2007


2007


2007


2007Net sales

$
188,443


$
185,359


$
191,606


$
191,428Gross profit


77,112



77,384



75,787



75,766Net income


38,089



38,303



32,650



35,224Basic income per share

$
1.40


$
1.41


$
1.20


$
1.29Diluted income per share

$
1.38


$
1.38


$
1.16


$
1.28   Quarter
    Ending
  March 31,


June 30,


September 30,


December 31,2008


2008


2008


2008Net sales

$
188,537


$
184,975


$
167,746


$
138,939Gross profit


71,529



75,561



66,664



51,558Net income


32,902



33,196



19,399



21,253Basic income per share

$
1.21


$
1.26


$
0.74


$
0.81Diluted income per share

$
1.20


$
1.25


$
0.73


$
0.81  F-42




---



##### Table of Contents



SIGNATURES
      By:
    /s/  JOEL
    P. MOSKOWITZ         /s/  Joel
    P. MoskowitzJoel
    P. Moskowitz

Chairman of the Board, Chief Executive Officer, President and
    Director
    (Principal Executive Officer)

February 24, 2009/s/  Jerrold
    J. PellizzonJerrold
    J. Pellizzon

Chief Financial Officer
    (Principal Financial and Accounting Officer)

February 24, 2009/s/  Richard
    A. AlliegroRichard
    A. Alliegro

Director

February 24, 2009/s/  Frank
    EdelsteinFrank
    Edelstein

Director

February 24, 2009/s/  Richard
    A. KertsonRichard
    A. Kertson

Director

February 24, 2009/s/  William
    C. LaCourseWilliam
    C. LaCourse

Director

February 24, 2009/s/  Milton
    L. LohrMilton
    L. Lohr

Director

February 24, 2009